There's never been a better time to shop online or a more challenging time to be an online retailer.
If you've ever bought online before, you've probably been inundated with coupons and promotions. In just one nine-day period this month, I received 20 e-mail offers from 13 online retailers. Drugstore site PlanetRx.com advertises 20% off storewide. BabyCenter and art site Guild.com both tout an incredible deal: twenty-five dollars off a $75 purchase. And ecentives, a company that delivers online offers and digital coupons, sends exclamation point-filled missives about deals at its 100-plus partner merchants (everyone from Cooking.com to Sears.com) practically every day.
The deals don't come by e-mail alone. Online drugstore More.com fills its home page with discounts, such as a free gift with purchase and free shipping on orders of more than $30. For pregnant and new moms, estyle.com's home page says shoppers can get $20 off a $50 purchase--an immediate savings of 40%.
BRAND ADS FALL 11 POINTS
There's statistical evidence that discount promotions are on the rise. Shop.org, the online retail association, reported its members spent just 20% of their total second-quarter marketing budget on brand-awareness advertising, down from 31% in the first quarter. The remainder went to customer acquisition and retention. CoolSavings.com, which distributes promotional offers for online retailers, said its client list has increased 25% since June.
I should make it clear that this isn't an article about privacy. None of these retailers has sent me offers without my permission. But the fact that there are such amazing deals for online shoppers raises red flags about the health of e-retailing.
The problem is simple. Each offer I get reminds me that I should never, ever make an online purchase without a discount in hand. For the retailers that think they're saving money by running more promotions and not plowing cash into brand advertising this fourth quarter, the cost of excessive couponing--measured in quality customer relationships, not dollars--could be far greater than they think.
"When there's such a prevalence of coupons and promotions in the market that a person expects to get a coupon before a purchase, then the retailer has gone too far," said James Vogtle, director of
e-commerce research at Boston Consulting Group, which conducts quarterly surveys on retailing for Shop.org. "Customers get very addicted to promotions very quickly. . . . It's a dangerous thing to do from the economics."
According to a recent study by e-commerce consumer ratings site BizRate.com, online coupons are the No. 1 reason for repeat customers to purchase from a site and the second-most popular reason for new customers to buy something online. Twenty-four percent of new customers and 37% of repeat customers said coupons influenced their purchase.
Discounts, though cheaper than untargeted brand advertising, can still wreak havoc on a company's health. Pets.com this summer told financial analysts an increase in couponing in the second quarter led to a drop in order size below the previous $30 to $40 average. The new game plan? Fewer coupons. (But the coupons keep coming. Pets.com just sent me an offer for $10 off a $20 purchase--and I don't even own a pet.)
Estyle, meanwhile, shows classic signs of an addiction to discounting. As a mom to be, I have purchased from the site four times in the past five months, using some sort of discount offer with each purchase. The first offer was too good to pass up: an on-site promotion for $50 off a $100 order. I returned a few months later with a $10-off coupon that estyle had e-mailed me, purchasing two items for just $1.95. A sale on strollers saved $25 off estyle's regular price and $70 off what I was about to pay at a bricks-and-mortar store. My last purchase was a $28 shirt, reduced to $18 with a $10 e-mail coupon.
In all, I purchased $412 worth of merchandise and paid $316. I could have saved even more; estyle sent several more offers during the summer that I deleted because I simply couldn't use them quickly enough.
Estyle said its promotional strategy is "evolving" and it is in the process of testing a variety of pricing initiatives across various customer segments. The company added that just 10% of its marketing spending is devoted to promotions.
There's no question that the online environment offers a perfect opportunity for retailers to develop highly targeted promotions that reach the right customer at the right time. But that doesn't seem to be happening right now.
Customers who have demonstrated loyalty by buying four times in five months--as I have done with estyle--shouldn't be flooded with discount offers. Sites such as PlanetRx--where I've made no purchases in several months--shouldn't send unfocused everything's-on-sale messages.
When I see a home page such as More.com's, featuring no fewer than eight discounts, I don't think "great deals." I think "desperation." Said More.com VP-Marketing Bruce Mowery of his site's strategy: "People like to be rewarded." He's quick to note that More.com isn't eating the cost of all of its promotions; some deals come from manufacturers and suppliers.
There's no question that targeted marketing is a smart strategy for cash-starved retailers. Big-brand advertising campaigns fit perfectly into last year's build-market-share-at-any-cost philosophy. This year, it's turn a profit or die, and the buzzwords du jour are loyalty and customer retention.
"There is a tremendous focus this year on customer retention, more so than acquisition," said Elaine Rubin, chairman of Shop.org. "Customer acquisition is important, but only if it's profitable."
Perhaps the brightest idea of late--but also one that has generated a fair amount of controversy--is Amazon.com's test of variable pricing. Earlier this month, the company offered lower prices on DVDs to certain customers to test how various prices would affect purchases. The test backfired, however, when customers who paid higher prices got wind of it and complained. Amazon was forced to refund money to those customers.
Variable pricing is actually commonly used based on the law of supply and demand, unlike the pricing method Amazon used. Airlines, for instance, employ variable pricing
Despite the glitches, variable pricing could be a far more logical way for online retailers to handle promotional offers. Such a scheme would use the power of Web targeting to deliver the right deal to the right person at the right time. And that should be the goal for retailers everywhere.
Contributing Editor Debra Aho Williamson and Inside the Web go on maternity leave in October.
Copyright September 2000, Crain Communications Inc.